Press Comment : Let’s hope the MG Rover Report will be worth £16m

David Bailey, Birmingham Post, 27th June, 2009

It was originally set up by the then DTI in 2005. Nearly four years and £16 million later, the DTI has had two name changes (BERR and now BIS), and the long-awaited MG Rover has – at last – been completed.

Local MP Richard Burden, who was told that the report has been completed, has quite rightly noted that “like everybody else in the area I have found it incredibly frustrating that we have had to wait so long for this report… so I now hope that the contents of the inquiry will be made available as soon as possible.

“‘The escalating cost of the inquiry has also been a matter of real concern to so many people, including me. Hopefully, the contents of the report will provide some answers to why it has cost so much and I certainly welcome the Government’s commitment to try to minimise the cost of any similar inquiries in the future. But the important thing now is to know what the report contains and I hope the Government will be able to make a statement on that as soon as possible.”

In an answer to a private question by Richard Burden, the Business Minister Ian Lucas said that in the future the Government would carefully consider any similar exercises so as to “minimise” costs.

As Jonathan Walker pointed out in his News blog yesterday, there could be a delay before the report is published as its findings will determine whether any further action is needed. If action is needed, then publication of the report might be considered prejudicial to that action.

Things are further complicated by the fact – as the Birmingham Mail notes today – that the Phoenix Four have said no money pledged to ex-workers from the MG Rover Trust Fund will be paid until the inquiry report is published. The Mail believes that around £16m piled up from the sale of dealerships and the Studley Castle conference centre is stuck in a bank account, delaying potential pay-outs to former employees.

As I’ve noted in several blogs over the last year, setting up the inquiry was indeed the right thing to do. Serious questions have yet to be answered about what happened, and the 6300 workers and their families who lost their jobs at Longbridge (plus several thousand more in the supply chain) deserve some answers. Let’s hope the long awaited report comes up with them.

Whilst 90% of ex MG-Rover workers were back in work by March last year, they were earning substantially (£5600) less in real terms than when they were at MG Rover, as a research we have have undertaken has shown (see here for our latest video documentary on this – you’ll have to scroll down for the video).

This research has highlighted the huge wage drop workers coming out of manufacturing have to experience. A key lesson here is the urgent need right now to support Jaguar Land Rover (see my blog yesterday on this).

I offer no excuse in repeating comments made in several earlier Post blogs and articles. It’s important to remember that MG Rover went bust owing hundreds of millions to suppliers, and creditors ended up getting a penny or two in the pound for what they were owed. The pension fund deficit ran into hundreds of millions.

From 2000 to 2005, parent Phoenix ate its way through BMW’s generous dowry and a valuable pile of unsold cars left over from BMW and sold off all the key assets such as land, the (profitable) parts business and the intellectual property rights to key models (in the latter case to Shanghai Auto). It was thought to be losing around £25 million a month went it finally went under in April 2005.

The Ten Key Questions Which The MG Rover Inspectors Should Answer:

1. Did the accounts add up and are they ‘true and fair’?

2. Why did the business strategy go so badly wrong? On taking over at Rover, Phoenix aimed to produce 200,000 cars a year, bring a new model to market, return to profit and find a partner to develop new cars. None of these objectives were achieved.

3. Why did management take so long to get to Shanghai? Why was critical time wasted with China Brilliance and Proton beforehand?

4. Did the company have the resources to get a new model to market? If it did, why did the company fail to do this?

5. Why was the group structure so complicated when in car industry terms this was such a tiny firm?

6. How was the money moved around? For example, why was MG Rover paying interest when the original loan from BMW was interest free?

7. In the final few months, did management realise that MG Rover was going to go insolvent?

8. How much money did the Phoenix Four pay themselves over the five years, and was this payment commensurate with the performance of the firm?

9. Why did the pension fund deficit arise?

10. What was the role of the Government, and was this adequate?

Let’s not forget as well that management repeatedly stated that they were “20 minutes” away from an all-or-nothing deal with Shanghai Auto back in April 2005, despite both the British Government and Shanghai having looked at the books and concluding that the company was running out of cash rather too quickly for comfort.

When it was clear that the proposed wide-ranging model collaboration between MG Rover and Shanghai was not going to happen, the latter had back-up plans. Phoenix did not; it was Shanghai or bust.

Shanghai was initially beaten to MG Rover’s left-overs by Nanjing who bought the remaining assets, before Shanghai and Nanjing were themselves finally brought together into a merged entity after some collective-banging-of-heads by the Chinese Government.

All of this is simply a quick reminder (if you need it, four years on) that some serious questions remain about how this industrial meltdown occurred. However, we don’t really know exactly what the DTI / BERR / BIS investigators have actually been looking at.

Back in 2005, the then DTI Secretary Alan Johnson argued that ‘the public interest requires that issues raised by the (Financial Reporting and) Review Panel and developments after 2003 when the last accounts were published be investigated by independent inspectors… I have asked them to report to me as quickly as possible and in a form which will enable the report to be made public. The Review Panel has not published its report and given my decision to appoint independent inspectors I will not be releasing it”. The inquiry was meant to be “speedy”; maybe in inquiry terms four years is speedy…

Back in 2005, shortly after the MG Rover collapse, I suggested ten key questions the inquiry should look at, namely:

1. Did the accounts add up and are they ‘true and fair’?

2. Why did the business strategy go so badly wrong? On taking over at Rover, Phoenix aimed to produce 200,000 cars a year, bring a new model to market, return to profit and find a partner to develop new cars. None of these objectives were achieved.

3. Why did management take so long to get to Shanghai? Why was critical time wasted with China Brilliance and Proton beforehand?

4. Did the company have the resources to get a new model to market? If it did, why did the company fail to do this?

5. Why was the group structure so complicated when in car industry terms this was such a tiny firm?

6. How was the money moved around? For example, why was MG Rover paying interest when the original loan from BMW was interest free?

7. In the final few months, did management realise that MG Rover was going to go insolvent?

8. How much money did the Phoenix Four pay themselves over the five years, and was this payment commensurate with the performance of the firm?

9. Why did the pension fund deficit arise?

10. What was the role of the Government, and was this adequate?

On the latter, there were questions over the Government’s backing of Phoenix back in 2000 against the rival Alchemy bid, whether alarm bells went off at the DTI in 2002/3 when it was becoming clear to external commentators that the firm was running out of time, and whether the proposed £100 million ‘bridging loan’ proposed in April 2005 in a last-ditch attempt to shore up a Shanghai deal was an appropriate use of taxpayers’ money.

Given the situation now with LDV, I’d add a question 11, on ‘Chapter 11’ issues (this is a chapter of the US Bankruptcy Code): do insolvency and administration arrangements work well enough in the UK? I should stress that this isn’t a criticism of the MG Rover Administrators PwC who did a very good job within the current legal framework they were given to operate in. They did their job in getting the best deal for creditors, by selling to the highest bidder, Nanjing.

Yet it was obvious to myself and industry analysts that Nanjing was a small firm with limited experience (it had never successfully innovated and got a new car to market) and in economic development terms it was apparent that the Shanghai bid would have delivered superior benefits for the local economy. Of course Nanjing ended up in Shanghai hands eventually, but the delays (and maybe the StadCo pullout) might have been avoided by an immediate deal with Shanghai.

So, there is a question over how we deal with company failures. Would a Chapter 11 type arrangement in the UK have offered more scope to arrange a deal with Shanghai without the firm actually ceasing operation, thereby retaining more activity at Longbridge?

Or, if that was not possible, should a ‘public interest’ clause be brought in to the administration process to make sure that the wider economic and public interest be taken into account when dealing with such cases?

We won’t be getting any answers on the administration process (which should anyway be the subject of separate review) but let’s hope that the report now with Lord Mandelson addresses questions 1-10 above. The workers still deserve some answers, four years on.

[Source: Birmingham Post]

[Editor’s Note: Professor David Bailey works at Coventry University Business School and is Chair of the Regional Studies Association.]

Posted in: AROnline News, MG Rover
Clive Goldthorp

About the Author:

Clive claims that his interest in the BMC>MG story dates back to his childhood in the 1960s when the family’s garage premises were leased to a tenant with an Austin agency. However, back in the 1920s and 1930s, his grandmother was one of the country’s first female Garage Proprietors so cars probably run in his genes! Admits to affairs with Alfa Romeos, but has more recently owned an 06/06 MG TF 135 and then a 15/64 MG3 Style… Clive, who was AROnline’s News Editor for nearly four years, stood down from that role in order to devote more time to various Motor Racing projects but still contributes articles on as regular basis as his other commitments permit.

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